America West Airlines and bankrupt US Airways have struck a merger agreement that will see the two carriers operate under the US Airways brand and be headed by America West chief executive Doug Parker.

The merged airline will be modelled after low-cost carrier Southwest, focusing on local point-to-point services and pulling out of transcontinental routes to avoid competition from low-cost carriers like JetBlue.

The deal will be financed with $1.5 billion in new capital, including $350 million of new equity commitments, $675 million from partners and suppliers, and proceeds from a $150 million rights offering. Airbus has agreed a $250 million loan as part of a deal that will see the merged airline become an A350 launch customer.

The $350 million of new equity is expected to be provided by four separate groups. Air Canada parent ACE Aviation Holdings has made a $75 million commitment in return for a codeshare deal; Boston-based hedge fund PAR Capital Management $100 million; and Virginia-based Peninsula Investment Partners $50 million. Air Wisconsin Airlines-owned Eastshore Holdings has pledged $125 million in return for a regional feeder contract.

"Through this combination, we are seizing the opportunity to strengthen our business rather than waiting for the industry environment to improve. A combined US Airways/America West places the new airline in a position of strength and future growth that neither of us could have achieved on our own," says Parker.

As part of the merger US Airways will return an additional 25 aircraft by the end of 2006, on top of 46 it has already announced it will return, and will transition to an all-Airbus mainline fleet with delivery of 13 Airbus A320s previously ordered by America West.

In addition, Airbus is to reschedule deliveries of 30 A320 family aircraft from 2006-8 to 2009-10. The merged airline will reduce its combined fleet by 15% and capacity by 10%, and shed 5,000 jobs.

Source: Flight International